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Old 01-31-2020, 03:51 PM
Red Dirt Walker Red Dirt Walker is offline
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Ok, I need some advice from people that know more than I do.

My wife and I are looking to purchase a new home in the near future, but question is what to do with our current home. Turn it into a rental or sell.
For information on my current home I only lack 20K to paying it off, but it needs major updating. My thoughts are below, but I'm wanting to do a 15 year mortgage on the new home.

1. Rental - Pay off the 20K so that all of the rent money is profit, which will pay for the insurance, taxes, and future repairs of the rental and some will go towards the new house. This will not allow us to put a huge down payment on the new home though.

2. Sell - Selling my current home and paying off the 20K would mean a large down payment on my new home, making the payments much smaller. This would also not touch our savings, so I would want to use it to try and move the new house to NetZero as much as possible. Refresh insulation, windows if needed....things like that, and possibly solar panels.

I'm in Oklahoma if that matters.

My ultimate goal is to be able to retire from a full-time job by 65 and I'm 48 now. I would also love a Netzero home so I have as few bills as possible once I retire or before.

Thoughts?
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Old 01-31-2020, 03:57 PM
AZ_HighCountry AZ_HighCountry is offline
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My initial thoughts, without knowing more about your overall financial situation, is to sell the existing home and then rent until you find or build the new home. You don't want to be stuck with two mortgage payments in the event you go for a period without a tenant. I don't know where you are in Oklahoma therefore have no idea what the rental market is like. In my area, our two rentals are both rented out and the tenants are on the 2nd or is it 3rd year. I have no idea; that's what I pay a property manager for.

Then, with the rental, unless you have a property manager, YOU get stuck with dealing with the whiny tenant and all of that.
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Old 01-31-2020, 04:16 PM
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How much can you get if you sold your current house. In my experience most personal homes make bad rentals.

Your profit percentage will probably suck. A good rental should make 15% plus profit on the downpayment. I shoot for 20 but that is hard in my market now.

Also if your rental is over 30 min from your new house it becomes a pain dealing with it.

Usually one is emotionally conected to a house they live in. If a bad tenant trashes the house it will hurt a lot.

I have 5 rentals and I am selling my current house when we upgrade this year. It will not become rental number 6. Makes more sense making a large payment on the next house. Or investing the money in other ways.
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Old 01-31-2020, 05:56 PM
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Old 01-31-2020, 06:36 PM
Red Dirt Walker Red Dirt Walker is offline
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Quote:
Originally Posted by AZ_HighCountry View Post
My initial thoughts, without knowing more about your overall financial situation, is to sell the existing home and then rent until you find or build the new home. You don't want to be stuck with two mortgage payments in the event you go for a period without a tenant. I don't know where you are in Oklahoma therefore have no idea what the rental market is like. In my area, our two rentals are both rented out and the tenants are on the 2nd or is it 3rd year. I have no idea; that's what I pay a property manager for.

Then, with the rental, unless you have a property manager, YOU get stuck with dealing with the whiny tenant and all of that.
My plan is to higher a property management company. My wife and I are good money so double mortgage payments wouldn't be a huge burden for a time, at least. Rental market in my area is good. There are several in my current neighborhood that don't stay empty for long.
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Old 01-31-2020, 07:05 PM
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SELL IT!!!!!! Seriously.

I made a financial mistake that nearly ruined me in holding onto a rental property. In the first 2 years I lived there, I was ahead of the game and should have sold it when I moved. It was in excellent condition and would have brought high market price, and I was there to supervise it and wasn't paying two mortgages at the time. I should have sold and moved. I could have done a FSBO and cut out at least some commissions.

I made the really dumb decision to hold it as a rental. I suffered periods of vacancy, tenants that abused the property, emergency expensive repairs, nonpaying tenants and ultimate massive losses.

Tax breaks did not offset losses. It just made taxes more complicated.
Paying a property manager 10% + $250 for new tenants ate into any possible profits. I was still responsible for maintenance and repairs.

After the next 8 years of renting it I took probably a $50,000 or greater direct loss in 8 years, on top of the $150,000 in mortgages I paid. The property didn't appreciate as I had hoped. And by the time I was ready to sell, the house was 8 years older and in disrepair from renters abusing it. It needed expensive repairs, and had issues from abuse and neglect.

Let me repeat that. In 8 years as a rental, I paid about $150,000 in mortgage before selling it at a loss and paying realtor fees and thousands in repairs and updates from renters damaging it. It was rented for most of that time, I still took about $50,000 in losses.

Also, I will add that the stress was overwhelming at times. Markets don't always go up. I expected my rental to go up in value. It was in a great area by a major military base. But Obama cut the military 20% and the builders over-built the neighborhood. My house actually failed to appreciate in 10 years. No appreciation. I ended up selling it for about what I paid 10 years prior. And I lost a LOT of money in paying mortgage for many years, particularly during vacancies.

In the meantime, that same $50,000 in losses invested in the stock market from 2011 until now would have probably doubled or tripled or more. So while that asset rental house was a financial anchor, I missed out on probably tripling it in the stock market.

Go watch some Youtube videos of renters purposefully abusing property with drugs, stealing all the copper wiring and plumbing, filth, vermin, etc. I talked to a guy last year who said he had a rental and the renters were evicted. In revenge, they punched holes in the walls and defalcated. The law required a Hazmat team to clean it. That bill was $10,000.

How will you financially absorb "worst case" scenarios like your house becoming a meth house and condemned? Or renters stripping all the wiring and causing $50,000 in damage your house? How will you absorb 2 or 3 months of vacancies? Or if the market collapses like 2008? I had a renter I needed to evict after months of nonpayment. In the end, I lost about $10,000 on 1 renter and that eviction. I basically paid his living expense for 5 months. That's money I'll never recover. What if you have to evict? That'll cost money. What if you are sued for discrimination or other allegations? That will cost money. What if someone is hurt on your property and you are sued? Make sure you have great insurance.

FYI Insurance will not cover losses from renters destroying your home.

Rental laws significantly favor tenants.

In a worse case, you could bankrupt yourself and have the property condemned and a total financial loss. Sell the house at a profit now. Take that money and use it intelligently in other investments. The massive risk and responsibility you place in some strangers' hands to totally financially ruin you is simply too great. Sell it, take the cash and buy precious medals, mutual funds, go on vacation, buy bonds, buy guns and ammunition, pay off debts, pay off your next mortgage, etc.

DO NOT HOLD THE PROPERTY. SELL IT.
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Old 01-31-2020, 07:18 PM
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Dave Ramsey knows real estate. Find this radio show or podcast.
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Old 01-31-2020, 07:20 PM
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Sell and put the money on the new house. The rental company will get any profit - you will loaning your house to them for free.
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Old 01-31-2020, 07:34 PM
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If you are using a property manager kiss your profit goodbye. They charge 10% of your rent for doing nothing beyond collecting rent. Repair call is extra and usually they just call a trade. Tenant does not pay it will cost extra for them to collect. They only make sense if you are using them for a big complex.

I have gone 3 months without a tenant calling with an issue and it took 6 dollars and 35 min to fix which included driving. But I also had a tenant screw me on over 2k of rent propane bill and 800 dollars of material damages. Took 2 weeks for me to fix it up.
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Old 01-31-2020, 07:51 PM
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I you didn't already own this house, would you purchase it to be a landlord?
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Old 02-01-2020, 10:21 AM
Red Dirt Walker Red Dirt Walker is offline
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Quote:
Originally Posted by maintenanceguy View Post
I you didn't already own this house, would you purchase it to be a landlord?
To be fair, I've never been in the position for this possibility. Given the school district it's in, they are building a brand new neighborhood next to it I would. The only downside I have in location is that the nearest major street corner is up for sale for an apartment complex.

I probably would.
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Old 02-01-2020, 10:40 AM
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Owner finance it.
This way you never have to worry about repairs, you can put whatever down payment you want on it. Charge a higher interest rate than a bank. A 30 year note at 6-9 % is good steady income.
Hell you may get the house back two or three times because people don’t want to mess with selling it themselves.
We’ve had several that we got back, sure we had to update but once you get the house back you sell it again at full value.
Bit of a pain in the ass but is very profitable.... As long as you live close by it’s a great deal for you.
I’ve done both, rent and owner finance, owner finance is the way to go.
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Old 02-01-2020, 10:54 AM
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I would sell and work the mortgage down on the new house. Nothing like being debt free. Plus I wouldn't want the worry of tenets and being on their speed dial for every little thing. I would always be worried if they would cook meth or something else to ruin the place.
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Old 02-01-2020, 11:52 AM
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Quote:
Originally Posted by maintenanceguy View Post
I you didn't already own this house, would you purchase it to be a landlord?
Quote:
Originally Posted by Red Dirt Walker View Post
To be fair, I've never been in the position for this possibility. Given the school district it's in, they are building a brand new neighborhood next to it I would. The only downside I have in location is that the nearest major street corner is up for sale for an apartment complex.

I probably would.
I think you have your answer. Good luck.
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Old 02-01-2020, 12:25 PM
Mule Skinner Mule Skinner is offline
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In 1978 I bought the house where I still live.
Took a 15 year mortgage despite X2 wanting to string it out to 30
so we would have more free cash (that she could spend.)
Made the last payment in July of 1993...

I have now been getting "imputed rent"[*] for 26 years.

So: I say sell the old one, and get the shortest mortgage you can
on the new one. And by the way, mortgage rates are low right now.
.
.[*] Imputed rent is virtual income. It's what you would have to pay
if you rented that house from someone else.
AND IT'S NOT TAXABLE although at one point in history
congress actually considered taxing this.
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Old 02-02-2020, 09:16 AM
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A ton of good advice already in this thread. I'd say largely it depends on the rental market in your area and proximity to your new place, in terms of how successful keeping it as a rental could be.

IMHO a lot of people exaggerate, and make a worst case scenario, of the tenants thing. Do people not do any sort of vetting? At a bare minimum my partner and I require a $500 cash security deposit, that along with asking to see their two most recent pay stubs deters virtually all the riff-raff. I consider myself a good judge of character, but then again its not really rocket science. If someone were to come check out an apartment in a 4XL white tee, a pair of Jordan's, and they pulled up in a 1993 Caprice on rims.......I'm probably not renting to said individual. You always have credit and background checks at your disposal as well. Single mom's tend to make excellent tenants. They re-up their leases, are dependable on rent, and generally don't make a big fuss. Even the one's I would've thought were a tad sketchy never brought any b.s. home, or around their children.

A brick with a dollar sign spray painted on it is usually all it takes to handle things "internally" and motivate people to either pay their rent, or GTFO if they're tearing up the joint. By the time it comes to that, the battle lines will have been well drawn, so they'll know whats what. The first time its placed gently on a rag on their roof, above the driver's door. If that message isn't received next time its on the drivers seat
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Old 02-02-2020, 02:46 PM
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I have seen several good rental investments locally.
However, I talked myself out of them because I wanted
- liquidity, and
- portability
.
That is to say, I want to be able to leave town...easily.

So I invest in stocks instead.
Easy to buy and sell.
Can be done from anywhere.
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Old 02-02-2020, 03:53 PM
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In middle school and HS I worked with a family friend part time helping him with his twenty rental houses.

I remember wading knee deep in garbage in some of his houses, I remember one house that had no doors as the tenants had burned the doors in the fireplace for heat. Downstairs we found a huge amount of stolen property from the television station that the guy worked at not to mention a dozen potted pot plants cut off and taken with them growing in the basement. All this after the people having lived there for three months without paying a dime in rent. Now multiply this time and time again year after year....

After a couple years of helping Ed with his rentals I determined that I would "never" consider getting into the rental game.

I bought my first house in a city for 28K, it was 2 blocks from a school, 2 blocks from Albertsons etc.. It was a double lot with a single dwelling and a shop/garage. Eventually Costco bought all the land and built a new store nearly across the street, I was able to tear down the old 100 year old home and sell the property for three times what I paid for it.

Then I bought 200 acres undeveloped farm land and found a loophole allowing me to put a residence on the property. I put up an old 70 foot mobile home, built my own driveway, put in my electric, put in my sewer/septic and over the years built about 6 miles of road and numerous outbuildings on it. I paid $201K for it and put another $100K into it over the ten years I owned the place. I sold it off for $380K and bought this nice little 40 acre farm with a 3,600 square foot home, 1,800 sq foot shop, barns, five ponds full of fish, 12 acres of timber, hay, a great well etc...

I bought this place when the market had bottomed out in 2012 for $280K, it had been assessed at $480K in 2008 before the market dropped out, it is now valued at around $620K to $640K.

I defy you to make that amount of money renting....
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Old 02-03-2020, 11:59 AM
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Quote:
Originally Posted by T.$.Racing View Post
A ton of good advice already in this thread. I'd say largely it depends on the rental market in your area and proximity to your new place, in terms of how successful keeping it as a rental could be.

IMHO a lot of people exaggerate, and make a worst case scenario, of the tenants thing. Do people not do any sort of vetting? At a bare minimum my partner and I require a $500 cash security deposit, that along with asking to see their two most recent pay stubs deters virtually all the riff-raff. I consider myself a good judge of character, but then again its not really rocket science. If someone were to come check out an apartment in a 4XL white tee, a pair of Jordan's, and they pulled up in a 1993 Caprice on rims.......I'm probably not renting to said individual. You always have credit and background checks at your disposal as well. Single mom's tend to make excellent tenants. They re-up their leases, are dependable on rent, and generally don't make a big fuss. Even the one's I would've thought were a tad sketchy never brought any b.s. home, or around their children.

A brick with a dollar sign spray painted on it is usually all it takes to handle things "internally" and motivate people to either pay their rent, or GTFO if they're tearing up the joint. By the time it comes to that, the battle lines will have been well drawn, so they'll know whats what. The first time its placed gently on a rag on their roof, above the driver's door. If that message isn't received next time its on the drivers seat
This is HORRIBLE advice.

First, it ignores reality.

Secondly, it suggests illegal possible FELONY level extortion. It's going to be hard to manage your property if you're in jail for a felony, and hiring a lawyer to defend you.

Third, a home owner stands to lose a LOT MORE in value than a car window. You break their car window, a $200 value, you might find $30,000 in damages to your rental house...

Bad renters really have a home owner by the sack. They hold essentially all the cards. All the homeowner can do is threaten eviction which will damage their credit. And some people just don't care, particularly if they have unexpected bad life events.
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Old 02-03-2020, 12:01 PM
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Quote:
Originally Posted by Mountain View Post
In middle school and HS I worked with a family friend part time helping him with his twenty rental houses.

I remember wading knee deep in garbage in some of his houses, I remember one house that had no doors as the tenants had burned the doors in the fireplace for heat. Downstairs we found a huge amount of stolen property from the television station that the guy worked at not to mention a dozen potted pot plants cut off and taken with them growing in the basement. All this after the people having lived there for three months without paying a dime in rent. Now multiply this time and time again year after year....

After a couple years of helping Ed with his rentals I determined that I would "never" consider getting into the rental game.

.
Yup, this became my biggest fear when I was a landlord.
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